Hyderabad: Foreign portfolio investors (FPIs) pulled out a record Rs 1.6 lakh crore from Indian equity markets in 2025, marking the highest-ever annual outflow amid global volatility, currency pressures and valuation concerns. The withdrawal made 2025 the worst year for equity flows, surpassing the earlier record outflow of Rs 1.21 lakh crore in 2022.

Market experts attributed the sharp exit to persistently high US interest rates, rising bond yields and a stronger dollar, which improved risk-free returns in developed markets and reduced risk appetite for emerging economies such as India. Global trade tensions, fears of fresh US tariffs and geopolitical uncertainties further weighed on investor sentiment. Periodic depreciation of the rupee also eroded dollar-based returns and increased hedging costs for overseas investors.

Despite the heavy equity sell-off, FPIs remained net buyers in the debt segment, investing over Rs 59,000 crore during the year. This was driven by India’s inclusion in global bond indices, attractive yield differentials and portfolio rebalancing amid volatile equity markets. The phased inclusion of government bonds under the Fully Accessible Route (FAR) created steady demand, especially from passive funds.

The monthly trend reflected high volatility, with FPIs selling equities in eight of the twelve months. After sharp outflows in the first quarter, inflows were seen between April and June, followed by renewed selling from July to September. A brief return in October was again reversed in November and December.

Domestic institutional investors cushioned the impact of foreign selling, supported by strong SIP inflows from retail investors.